Duhaime's Law Dictionary

Consideration Definition:

Some right, interest, profit or benefit accruing to the one party of a contract, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.

Related Terms: Contract, Nudum Pactum, Quid Pro Quo

Under common law, there can be no binding contract without consideration, which was defined in an 1875 English decision as "some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other".

As stated recently in Terrafund Financial Inc. v 569244 BC Ltd.:

"It is a fundamental principle of contract law that in order to create a binding contract which the law will recognize and enforce, there must be an exchange of consideration between the parties.

"Consideration is simply something of value received by a promisor from a promisee.  It can take the form of a right, interest or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility, given, suffered or undertaken by the other  .

"If there is no consideration there is no contract; and if there is no contract, there is nothing upon or from which to found or create liability.…

"The act or promise of one party is, as it were, 'bought' or 'bargained for' by the act or promise of the other; each party exchanges something of value.  To create an enforceable contract there must be ... 'reciprocal undertakings'.  So, if one party is neither giving anything, nor is promising to do or give anything, there is no consideration for the other party’s act or promise."

Historically, when all contracts were verbal (parol), the common law did not want to enforce gratuitous offers, those made without anything offered in exchange (such as gifts), to be given the protection of contract law. So they added the criteria of consideration.

But since consideration, as Judge Wilmot said in a judicially radical case in 1765, Pillans v Mierop, came from an era when contracts were verbal - not in writing. Something was then required by the law to formalize agreements; to allow the Court to determine where there had been deliberate action to obligate oneself:

"... to put people upon attention and reflection, and to prevent obscurity and uncertainty."

Writing, widely available by 1765, surmised judge Wilmot, gave contract-making formality enough and consideration ought not to be needed.

This opinion was rejected by subsequent English courts and debtors of contracts where consideration was elusive, based on strict common law, were finding ways to abscond on their obligations and pre-empt a court from enforcing an otherwise valid contract against them.

Later, other judges said that a moral obligation was good enough consideration. Again, this too, was eventually rejected as the common law continues today to struggle with the necessity of consideration as a requirement for a valid and enforceable contract, especially in regards to promissory notes and cheques, where consideration is not apparent.

Soon, a simple moral obligation was back in vogue as sufficient consideration and in regards to contracts reduced to writing, the Courts went to great length to prevent any defence to it based on a lack of consideration.

Even today, consideration is a sensitive subject to most common law lawyers who might explain that it is a requirement at law but struggle with what the requirement might be. This is an example of the failing of a common law system. Nobody knows what the law is but like the fable of the emperor having no clothes, there is no brave common law leader to yell loud enough that "the emperor has no clothes".

Consideration is not required in contracts made in civil law systems and many common law states have adopted laws which remove consideration as a prerequisite of a valid contract.

A contract void of consideration is said to be nudum pactum.




Categories & Topics:

Always looking up definitions? Save time with our search provider (modern browsers only)

If you find an error or omission in Duhaime's Law Dictionary, or if you have suggestion for a legal term, we'd love to hear from you!